What happened

Shares of Abeona Therapeutics (NASDAQ:ABEO) are up 18% as of 2:50 p.m. EDT after an analyst from RBC Capital initiated coverage of the gene therapy company with an outperform rating and assigned a $23 price target, more than 35% higher than it is right now.

So what

Abeona Therapeutics has been on fire lately, up more than 250% over the last six months, but much of the higher stock price has come from increasing positive investor sentiment off of a fairly low market cap rather than any fundamental change in Abeona's valuation.

Digital screen showing ticker-price movements with arrows

Image source: Getty Images.

Last month, for instance, Abeona jumped 18% in one day after announcing that its EB-101 gene therapy program was given breakthrough therapy designation by the Food and Drug Administration. Sure, it's a nice thing to have, since the designation can speed up interactions with the FDA and is a bit of an endorsement from the agency, but it shouldn't make Abeona worth substantially more to any investor who already believed in EB-101's potential.

The same thing is going on here with the new analyst coverage. Abeona isn't actually worth more because an analyst assigns a high price target on the biotech, but the increasing positive sentiment from the added endorsement has investors feeling better about the risk-reward profile of Abeona.

Now what

Long-term investors don't really have to follow the momentum caused by changes in sentiment -- or be worried about when it might shift back. Abeona's eventual value will be determined by the results of its phase 3 trial that will start next year testing EB-101 in patients with recessive dystrophic epidermolysis bullosa, a genetic skin disorder.

Investors will get a rundown of the trial during Abeona's research and development day next month, which could help keep the bullish sentiment going for a little while longer.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.